Posts Tagged ‘management team’

Much has been written over the last year about the biases that get in the way of decision-making.

Many of the articles or posts describe, and provide examples of, these biases. But they’re often short on how to avoid them.

So, when I saw one that provided 3 very practical ways to prevent bias affecting strategy decisions, it quickly got my attention.

I disagree with some of the points made – for example, I don’t discount the value of intuition or your gut.

In fact, we tell the business owners we work with never to ignore them. But we also say that, rather than base a critical decision solely on those alone, they must be supported by objective analysis and data.

I do, however, like the 3 techniques.

1. Make decision rules before you’re faced with the decision. It’s much easier to be objective when the decision that has to be made is still an intellectual concept. For example, Intel devised a rule for allocating their limited production capacity. Its use by the production team meant that successful new generation products were automatically allocated more capacity than maturing products. This happened regardless of senior management’s bias toward the mature products because they helped build the company.

2. Use the collective wisdom of the team. This is a variation of the adage “2 heads are better than 1” and using decision rules. It is most effectively used with decisions which will have a major negative impact on the company if they are wrong. For example, investing a large amount of money to manufacture or otherwise support a new product or market or making an acquisition. Using a process to draw input from the members of the team, from all areas of the company, with most direct, relevant experience lifts the burden from the shoulders solely of the owner or the management team.

3. The revolving door. A variation of the “Man from Mars” approach, this technique asks the question “If we were replaced by new owners, or a new management team, what would they do?” Figure out the answer, and then figuratively go out through the revolving door, come back in, and do that.

It’s really hard to keep emotion and your personal preferences out of decisions. We all subconsciously allow them to creep in – we wouldn’t be human if we didn’t. You can read the full article here.

I saw an article last week which argued that there are 3 decisions that CEOs of corporations cannot delegate.

They are decisions about goals, allocating resources, and people.

That got me thinking.

My first reaction was that business owners are less likely than corporate CEOs to delegate these decisions in the traditional sense.

In other words, owners won’t allow their management teams to make decisions about these 3 areas without their direct involvement.

But then I realized I was wrong. There is one set of circumstances in which some entrepreneurs do exactly that.

When they first begin to work with a management team, some business owners believe they have to take a completely “hands off” approach, allowing their management team to make decisions about all aspects of the company.

That’s not delegation, that’s abdication.

And most of those owners take control again when actual results don’t match their expectations.

Coming back to my original train of thought, however, I do believe that entrepreneurs “delegate” decisions about goals, allocating resources, and people by omission.

They become immersed in day-to-day operations to such an extent that they don’t:

• Regularly allocate time to set goals, review progress against them and make adjustments when necessary.
• Allocate the financial and other resources to the initiatives, activities, projects that are going to have the greatest impact on the company’s future.
• Deal quickly with situations in which they have the wrong person in a key position. That may be because they can’t admit they made a mistake putting the person there in the first place, they have misplaced loyalty to a long-term employee, or because they’re a relative.

It’s hard to have the discipline to regularly step back from the crises of the day to objectively review performance and plan for the future.

It’s also hard to find a technique or process that produces plans which can be turned into actions, which yield the results the owner wants.

And it’s really hard to look someone in the eye and tell them that they’re not doing what is required of their position.

But because something is hard to do is not a good reason for not doing it.

Should senior management be in the room during a session to identify the company’s strengths and weaknesses? That’s a question we’re asked quite often when we facilitate business planning sessions.

So here’s our point of view – and if you don’t agree with it, feel free to leave some comments telling us why not.

1. It’s an “all or nothing” question.

Regardless of who raises the question – the senior management team or the employees invited to the meeting – it’s often accompanied by the suggestion that management “leave the room at some point”.

That may seem like a fair proposal. But is it? Or is it just a way to make a difficult situation seem better?

How do you decide when management should leave and when they should come back? Because how does leaving and returning address the real issue – which is that the people invited to attend don’t believe they can be frank when the senior management team are present?

Management should either not be there at all or should be there all of the time. And the only way to make that choice is to tackle the real issue.

2. The real issue is………

The question is really about trust. The attendees don’t want to say certain things for fear of either not being understood and/or believed. And yes, there’s also the fear of some form of retribution – from being considered negative to being branded a troublemaker

We usually encounter the question when we work with companies whose revenues and profits have been dropping. They may even be losing money and have been through a period of “right-sizing” (according to management) or “downs-sizing” (according to employees). Or in companies where there has been a change of owner.

Both are examples of situations where change has caused uncertainty or where the management team thought that communication was regular and thorough – but the employees didn’t.

3. So how do you tackle it?

It is best done with a mixture of openness, logic and an outside perspective.

Everyone has to agree that the lack of trust exists.

The management team typically understands the value of the employees input and participation. But they also have to know how to act. They have to listen actively; comment only when appropriate; and watch the tone and language they use when responding to employees’ comments.

The attendees can usually be persuaded to suspend judgement until they are convinced that the management team is listening; not dominating the conversation; and not simply forcing their views on the employees.

If the meeting isn’t managed carefully all input/conversation will die. But if it is, then both the employees and management team will learn and trust will grow. Using an external facilitator can help

Logic and common sense dictate that, regardless of whether senior management attends the session or not, they are going to see the output. And they are unlikely to use it to develop a strategy without editing it. That output will only form a strong foundation for that strategy if everyone is in the room for the discussion and there’s been a frank assessment of the company’s strengths and weaknesses.

As a third party we can, for example, point to the investment being made in the session and that it is the first step in developing a growth strategy to secure the future of the company.

4. Final words.

The management team must be in the room. But they have to understand that when the culture is changing most people are confused and uncertain. And when they’re uncertain they usually avoid anything they consider risky.

The attendees have to understand if they don’t speak up they have to take responsibility for not giving management the chance to act on their thoughts.

Have the interest rates and annual review fees charged by your Bank gone up? Are you being asked to submit reports monthly? Have you had trouble getting a loan or LOC extended – even with personal guarantees?

A number of business owners we meet are not happy. Some can’t get access to new financing. Others are saying things like “I’ve been a good customer at my bank for 15 years. I’ve had 2 bad years and they are treating me like a new customer.”

So, when I was talking to a Commercial Account Manager at one of the banks recently, I asked him about the situation. He talked about what the past 18 months has meant to their business – higher loan loss provisions, increased costs of monitoring accounts etc. Then he told me about the risk factors they assess when they’re doing a scheduled review of an existing customer or pursuing someone they would like to do business with.

The financial ones are what you would expect – trends in revenues, gross margins, and inventory and accounts receivable days. They also want to be sure that the dividends the owners are paying themselves reflect the company’s operating performance.

But it was the 7 non-financial risk factors that caught my attention. Here they are. (The “editorial” comments in italics are mine):

The length of time the company has been in business.If you’ve been in business several years good if not, there’s nothing you can do about it so focus on the others.

How well the business performed in previous “adverse conditions”.If you were around and performed better than your competitors make really sure the Bank knows about it. If you weren’t and/or didn’t, focus on the others.

How well the company responded to the Bank if it had financial “challenges” in the past.Would you deliberately annoy the biggest supplier of inputs (human or material) to your product or service? Then why do that to your Bank? It may well be uncomfortable but it won’t hurt as much as shooting yourself in the foot.

If there are currently any liability issues? If there are, go for full disclosure and be pro-active – tell them about the plan you have in place to deal with them.

Whether there’s a succession plan and key man life insurance in place. Any company which has grown beyond “start-up” mode should at least be thinking about an exit strategy and/or succession plan. And every company should have key man/woman insurance.

If there’s breadth in the management team – with a clear separation of duties. If you’ve had a business for 4 or 5 years, still tightly control everything yourself; have no key person insurance; only did “all right” or “OK” in the last downturn; and had to be asked repeatedly for information, you should expect to be asked for personal guarantees – and you may be lucky to find a Bank that wants to deal with you!

Report in a timely fashion.There’s really no reason not to be reporting regularly. You get the information to provide feedback on how well you’re implementing your strategy anyway (don’t you?) So why not share it?

There’s not a great deal you can do today to impact the first 3 factors. And if there are liability issues they probably result from something that happened in the past. But you can have an immediate, ongoing impact on your ratings in the last 3 items.

Why? Because a variety of forecasters and commentators have predicted that the financing situation will be the same in 2011 as it was this year.

And if that’s the case then there are 4 things you can do to make your Bank love you;

Operate profitably and efficiently during these “adverse” conditions. This will give you a double win. You’ll ace all of the financial risk factors. And you’ll build a track record for the future in the second non-financial factor.

Regularly provide all of the information your Bank requires – before they ask for it.

Either begin or continue to spread responsibility for the company’s success over several key people, making each one responsible for a separate area e.g. selling, accounting and operations.

Buy or update your key man insurance and develop or update your exit/succession plan. (We can recommend professionals to help you with both.)

You’ll improve your chances of having enough funding to get out of the recession first/stronger.